Best States For Business 2016: Behind The Numbers

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Utah ranks on top of Forbes Best States for Business for the third straight year and for the sixth time since 2010 with only Virginia in 2013 interrupting Utah’s run at the top. Our 11th annual ranking measures six categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. We factor in 40 metrics from 17 sources to determine the ranks across the six main areas. The overall ranks are based on a combination of ranks in the six main categories. Below is a breakdown of each category with the best and worst performer, along with the data sources.

The Charlotte skyline towers over the practice fields as the Carolina Panthers NFL football team practices. (AP Photo/Bob Leverone)

Business Costs

No. 1 State: South Dakota; No. 50 State: Massachusetts

Business costs incorporate Moody’s Analytics Cost of Doing Business index which includes labor, energy and taxes. Moody’s weighs labor costs the most heavily in its index. We also included a state tax index from the Tax Foundation that launched in 2012 and was updated last year. The “Location Matters” study looks at the tax burden on businesses in each state across different industries. Business costs, labor supply and regulatory environment are equally weighted in the overall rankings.

Labor Supply

No. 1 State: Colorado; No. 50 State: West Virginia

Labor supply measures college and high school attainment based on figures from the Census Bureau. We also consider net migration over the past five years and the projected population growth over the next five years. Another factor is the percentage of the workforce that is represented by a union. Last year we added the percent of the population between the ages of 25 and 34. “Finding highly-educated millennials is top of mind for all of our clients,” says Jeff Lessard, who works with clients on their occupancy and location strategies at Cushman & Wakefield.

Regulatory Environment

No. 1 State: Nebraska; No. 50 State: West Virginia

Regulatory environment includes metrics influenced by the government. We incorporate the regulatory component of the “Freedom in the 50 States” report from the Mercatus Center at George Mason University. It considers labor regulations, health-insurance coverage mandates, occupational licensing, the tort system, right-to-work laws and more. We also factor in an index from Pollina Corporate Real Estate that measures tax incentives and the economic development efforts of each state. Other data points include Moody’s bond rating on the state’s general obligation debt and the transportation infrastructure including air, highway and rail.

A new addition this year is a measure of laws that protect people from employment discrimination based on sexual and/or gender identity. The state ratings were supplied by the Movement Advancement Project, which identified 18 states that offer protection for LGBT people and 18 states that are hostile. North Carolina has been on the firing lines for its controversial HB2 or "Bathroom Bill" passed this year. The measure has already cost the state an estimated $630 million in economic activity. “Some clients are actively staying away from North Carolina because of [HB2],” says Lessard.

Other factors in the regulatory component are a measure of the best and worst legal climates for businesses compiled by the U.S. Chamber Institute for Legal Reform. Seventy percent of general counsels who participate in the survey say a state’s lawsuit environment impacts decisions such as where to locate or expand. Another factor was a state’s fiscal health based on a study from the Mercatus Center that examines short and long-term debt and other key fiscal obligations.

Economic Climate

No. 1 State: Texas; No. 50 State: Wyoming

The economic climate category gauges job, income and gross state product growth as well as average unemployment during the past five years. Other metrics include the average 2016 unemployment rate and the number of the 1,000 biggest public and private companies by revenue headquartered in the state.

Growth Prospects

No. 1 State: Florida; No. 50 State: West Virginia

Growth prospects measures job, income and gross state product growth forecasts over the next five years from Moody’s Analytics. We also factor in EMSI’s “bottom-up” job forecasting approach, which compliments Moody’s “top-down” forecasts. Another metric was venture capital investments per the PricewaterhouseCoopers MoneyTree survey with data from
Thomson Reuters. The final data point in the category which we added this year for the first time is startup activity as tracked by the Kauffman Foundation. It replaced business openings and closings info from the Small Business Administration.

Quality of Life

No. 1 State: Ohio; No. 50 State: Nevada

Quality of life takes into account cost of living from Moody’s, school test performance via the Department of Education and crime rates from the FBI. We factored in the mean temperature in the state as a proxy for the weather and the number of top-ranked four-year colleges in the state from Forbes’ annual college rankings. We considered the culture and recreational opportunities in the state based on an index created by Bert Sperling, as part of our annual Best Places for Business and Careers. Other factors: commute times from the U.S. Census and select measures like air pollution and primary care physicians from the United Health Foundation’s America’s Health Rankings.

I am a senior editor at Forbes and focus mainly on the business of sports and our annual franchise valuations. I also spend a lot of my time digging into what athletes earn on and off the field of play. I've profiled a bunch of athletes that go by one name: LeBron, Shaq, Da...